Investment winners: what’s looking best for the new financial year?
The standout performers of 2023-24 were celebrated, but a new financial year brings fresh hope for different types of assets.
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Investors looking for the strongest returns this financial year are being urged to consider diversifying into alternatives beyond big-name Australian and US shares.
Aussie stocks were solid but unspectacular in 2023-24, failing to make the top five asset classes, according to a report by global fund manager VanEck, and analysts do not expect them to boom this year either.
Opinions are divided about which investments will perform the best, although emerging markets, gold and small-cap stocks are among the potential winners.
VanEck found Australian shares ranked sixth among 13 asset classes for the year to June 25, with Bitcoin (up 106 per cent) and listed global private equity (up 26 per cent) leading the way.
Gold, international equities and listed global private credit rounded out the top five.
VanEck head of investments and capital markets Russel Chesler said a big opportunity for the year ahead was with quality global small cap companies.
“Right now, valuations for global small caps are attractive for investors, at near 25-year lows relative to large caps, he said.
“Small caps also typically outperform large caps during market recoveries, and with many developed economies taking longer than expected to recover from elevated inflation, this presents a tailwind.”
Mr Chesler said gold had a big gain in the past year, up 22 per cent, but there could be more to go. “Persistent inflation, potential bumpy economic path and heightened geopolitical tensions could serve as a tailwind for gold prices, he said.
The VanEck report says institutional adoption of bitcoin is accelerating. “Hedge funds and asset management firms are increasingly recognising bitcoin’s potential as a store of value and as a portfolio diversifier,” it says.
Franklin Templeton analysts said US earnings should still be strong in 2024-25 but emerging markets offered better performance potential.
Baker Young managed portfolio analyst Toby Grimm said the ASX performance last financial year was “in the middle of the range” because lacklustre resources stocks offset strong gains by banks. “I think we will continue to muddle through,” he said.
“There is an argument to suggest that bonds are attractive at this point – there’s a medium-term opportunity in bonds.”
Commodities also appeared “heavily oversold” in the short term, Mr Grimm said.
He said it was vital for most investors to diversify assets as “it’s super easy to get it wrong” when focusing on just one asset class.
IG market analyst Tony Sycamore said he expected more strong growth in 2024-25 by US tech giants. “There’s nothing really to change the trends that have dominated this year – it’s all been about mega-tech and NASDAQ flying,” he said.
“There’s more to go in the AI space; valuations are stretched but not as much as in the dotcom bubble, and the players are making money.”
Mr Sycamore said he liked gold’s outlook, and bitcoin’s recent pullback might help its returns in 2024-25.
He said Australia’s big mining companies were likely to remain flat until there was a solid Chinese recovery
Canaccord Genuity Australia chief investment strategist Tony Brennan, however, said resources stocks “could soon become a market frontrunner”.
“This could follow interest rates falling in the advanced and emerging economies and a possible policy turnaround by China, which could support commodity prices further as they start to lift.”
Mr Brennan said interest rates around the world were starting to fall, although downward moves in Australia and the US could take longer.
The best investment performers
1. Bitcoin up 106%
2. Listed global private equity up 36%
3. Gold up 22%
4. International equities up 21%
5. Listed global private credit up 20%
6. Australian equities up 13%
7. Emerging market equities up 13%
8. Global high yield up 11%
9. Australian floating rate note bonds up 5.6%
10. Cash up 4.4%]
11. Australian bonds up 4.2%
12. Global bonds up 3.2%
13. Emerging market bonds up 0.1%
Source: VanEck (returns for 12 months to June 25)
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Originally published as Investment winners: what’s looking best for the new financial year?
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